ACCA FA · Chapter 14 · Question 10 of 10
A company has current assets of $120,000 and current liabilities of $60,000. It then pays a trade payable of $20,000 in cash. What is its current ratio after the payment?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 2.5:1
Explanation
After the payment, current assets = $120,000 - $20,000 = $100,000 and current liabilities = $60,000 - $20,000 = $40,000. Current ratio = $100,000 / $40,000 = 2.5:1. When the ratio is above 1, paying a liability from current assets increases it. Reducing only current assets gives 1.67:1.
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